As inflation eases, Goldman Sachs projects that the Federal Reserve will implement a series of 25-basis-point interest rate cuts from November 2024 through mid-2025. These consecutive cuts are anticipated to bring the terminal rate range down to 3.25-3.5%, raising questions about whether this shift could set off another bull run in the cryptocurrency market.
Fed's Strategy to Stabilize Inflation
Currently, the Fed's overnight rate sits between 4.75-5.00%, with a 94.1% chance of a 25-basis-point cut in its next meeting, according to the CME FedWatch Tool. By reducing rates, the Fed aims to meet its 2% inflation target, which has remained elusive.
Lower rates often make borrowing more affordable, encouraging investment in higher-risk assets like cryptocurrencies.
Bitcoin, for example, surged by 3% in mid-September following a recent 0.5 percentage point Fed rate cut, with its price now hovering at $62,120—a sign that the market may respond positively to these anticipated cuts.
How Rate Cuts Could Influence Crypto
Interest rate reductions historically drive investors towards high-growth assets, including digital assets, as the appeal of traditional financial products declines. Lower rates can weaken the dollar, which can increase investor interest in cryptocurrencies as an alternative store of value.
If the projected rate cuts occur, Bitcoin and other major cryptocurrencies might benefit from a new influx of capital, adding fuel to potential price growth in the coming months.
Global Rate Cuts
In a similar move, Goldman Sachs predicts that the European Central Bank (ECB) will also begin reducing interest rates, starting with a 25-basis-point cut. The ECB is expected to continue this trend until reaching a 2% rate by mid-2025.
This coordinated easing by central banks could create favorable conditions for crypto markets globally, as lower traditional returns make digital assets an appealing option for yield-seeking investors.
With the Fed and ECB both set on easing rates, the environment appears primed for risk assets, including cryptocurrencies, to rally.